Pandora

This week, I will be featuring a few examples of goods that are free, yet of value and willingly offered by those who provide them. Basic economic principles seem to imply that something that is free cannot be better that something with a positive price. It turns out that there are exceptions to this rule.

Radio is a good you can consume for free over the airwaves. It is financed by advertisements or by taxes. I some countries, one needs to pay a fee to listen to radio, but the fee does not depend on usage. One can however argue that ads are annoying and thus there is still a non-monetary cost to listening to commercial radio. And you have a rather limited choice regarding programming. This is partly what XM-Radio and Sirius exploit by offering numerous specialized ad-free radio stations for a subscription fee.

Then, there is internet radio, of which Pandora is the flagship. Is this particular case, the radio station is individualized, as listeners can stipulate what they like or dislike, and something akin to expert systems then suggests pieces that are most likely to fit your tastes (with a little randomness thrown in, to explore). With a little bit of training, stations fit very well to personal tastes and allows someone to find new artists from which you want to buy titles: descriptions and links for purchases are provided.

Pandora is free, so how is it financed? From ads you do not need to see (minimize the window...) and from sponsors that offer their own radio stations. Thanks to its algorithm, it is revolutionizing the way you find new music to listen to, as you do not have to rely on what airwave radio stations are deeming appropriate. And many artists are willing to put their music on Pandora for free, as it gives them a chance to be discovered. They may even be willing to pay to be listed.

This type of radio is vastly superior to anything radio could offer so far. Yet it is free. And artists are excited about it.